Date :Friday, December 26th, 2014 | Time : 10:24 |ID: 12066 | Print

Russia’s Finance Minister Calls For Slower Growth in Military Spending

SHAFAQNA – Russia needs to reassess its military spending amid slowing economic growth and reduced access to global capital markets as falling oil prices have hit the domestic economy hard, Finance Minister Anton Siluanov said Friday.

Russia will need to adapt its budgets to “new economic realities,” Mr. Siluanov said.

Under President Vladimir Putin , Russia has increased military spending in the past few years as the country benefited from steady inflows of petrodollars. Currently, Russia spends a third of its federal budget on defense and law enforcement, a proportion which is rising as overall state spending shrinks. Mr. Siluanov called for slower growth in spending on defense and law enforcement.

“The budget structure is extremely ineffective. It needs to be changed in the conditions when we have limited access to new sources of income,” Mr. Siluanov said.

In the past year, government revenue has come under pressure as the fall in oil prices to around $60 a barrel from more than $100 in the summer has squeezed Russia’s earnings from oil and gas exports.

Russia was on track to post a budget surplus of 0.7% of gross domestic product but the injection of one trillion rubles to stabilize the banking system will push the budget into a 0.7% deficit, Mr. Siluanov said.

Mr. Silunov’s comments coincided with the return of some stability to Russia’s currency markets after the ruble’s drop to record lows last week before a partial recovery in recent days.

The ruble is now close to its fair levels given oil prices of around $60 a barrel, he said.

The ruble eased 0.5% to 52.8 versus the dollar in early afternoon trading. That compares with its most recent low of 80.1 against the dollar.

Mr. Siluanov said the ruble is set to appreciate against major currencies in the first quarter next year.

In addition, Mr. Siluanov said Russia won’t push the government in Kiev for early reimbursement of a $3 billion eurobond that Moscow gave a year ago to Ukraine under its former president Viktor Yanukovych.

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